lecture26
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Unemployment and Its Natural Rate
Chapter 26
Categories of Unemployment
• The problem of unemployment is usually divided into two categories.
• The long-run problem and the short-run problem: The natural rate of unemployment The cyclical rate of unemployment
Natural Rate of Unemployment
• The natural rate of unemployment is unemployment that does not go away on its own even in the long run.
• It is the amount of unemployment that the economy normally experiences.
Cyclical Unemployment
• Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate.
• It is associated with with short-term ups and downs of the business cycle.
Describing Unemployment
Three Basic Questions:How does government measure the
economy’s rate of unemployment?What problems arise in interpreting the
unemployment data?How long are the unemployed typically
without work?
How is Unemployment Measured?
considers a person an adult if he or she is over 16 years old.
How is Unemployment Measured?
A person is considered employed if he or she has spent most of the previous week working at a paid job.
How is Unemployment Measured?
A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job.
How is Unemployment Measured?
A person who fits neither of these categories, such as a full-time student, homemaker, or retiree, is not in the labor force.
How is Unemployment Measured?
It defines the labor force as the sum of the employed and the unemployed.
How is Unemployment Measured?
The unemployment rate is calculated as the percentage of the labor force that is unemployed.
100forceLabor
unemployedNumber =ratent Unemployme
How is Unemployment Measured?
The labor-force participation rate is the percentage of the adult population that is in the labor force.
100populationAdult
forceLabor =rate ionparticipat force-Labor
Why Are There Always Some People Unemployed?
Frictional unemployment refers to the unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that are best suited for them.
Why Are There Always Some People Unemployed?
Structural unemployment occurs when the quantity of labor supplied exceeds the quantity demanded. Structural unemployment is often thought to explain longer spells of unemployment.